Construction Materials Prices Drop in May

Construction materials experience price drop in May, but lower costs are expected to be short-lived, according to AGC's chief economist

Jun 14, 2012

The amount contractors pay for a range of key construction materials edged down 0.3% in May and climbed by only 2.3% from a year earlier, according to an analysis of producer price index figures released today by the Associated General Contractors of America. Meanwhile, the amount contractors charge to construct projects remained largely flat for the month and is up only between 3.1% and 4.3% for the year.

“The slowdown in construction input price increases is a rare and possibly short-lived event,” said Ken Simonson, the association’s chief economist, noting that the last time prices rose so slowly from a year earlier was February 2010. “Meanwhile, some of the price increases we are seeing for materials like gypsum and lumber reflect a strengthening new residential and commercial remodeling construction.”

Simonson noted that prices for a number of key construction materials declined between April and May. The price index for diesel fuel dropped 3.6% in May and is down 0.2% compared to last year. The index for copper and brass mill shapes declined 1.6% for the month and 8.3% since May 2011. Likewise, aluminum mill products dropped in price for the month, by 1.9% and fell 9.0% from a year earlier. Meanwhile, the index for gypsum products increased by 1.2% in May and 13.6% compared to last year while lumber prices rose by 2.2% for the month and 7.0% since May 2011.

The price indexes for finished nonresidential buildings, which measure what contractors estimate they would charge to put up new structures, mostly inched up for the past month and are now beginning to outpace increases in construction materials prices, Simonson noted. The index for new industrial buildings actually declined 0.1% in May and is up only 3.1% for the year. The index for new office construction inched up 0.2% for the month and 3.4% for the year. The price for new warehouse construction also increased by 0.2% in May and rose 4.2% compared to May 2011. And the price for new school construction was up 0.1% for the month and 4.3% for the year.

The construction economist added that materials prices are likely to remain moderate for the time being, based on recent reports and future market pricing for diesel fuel, copper, and steel. Simonson attributed the slowdown to weakening demand from Europe, as well as China and other developing nations.

Association officials said the new pricing data shows that now is a good time for public and private sector owners to start construction on needed projects. “The price break makes this an ideal time for both private sector owners and government agencies to start construction,” said Stephen E. Sandherr, the association’s CEO. “Taxpayers will get a good deal if Congress can complete work soon on long-stalled highway and transit funding, and avoid making further cuts to building and infrastructure construction projects while prices are still relatively low."